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2016 (10) TMI 214 - ITAT JAIPUR

2016 (10) TMI 214 - ITAT JAIPUR - TMI - Reopening of assessment - disallowance of expenses towards the interest paid to the partners of the firm - Held that:- Once neither the question was asked from the assessee nor any enquiry was conducted by the Assessing Officer nor he applied his mind on the deductibility of the interest to the partners, therefore in our view, no opinion was formed by the Assessing Officer in the original assessment proceedings in this regard. Since we have held that no op .....

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erred hereinabove, it does not matter even if the reopening/reassessment are sought to be initiated on the basis of the material already available on the record in the original assessment proceedings. - Decided against assessee - Disallowance of interest paid to the partners towards the capital contribution - Held that:- Since the assessee had admitted that the amount of ₹ 62,65,,456/- as unexplained cash deposits of the assessee, though, the said amount was applied by the assessee to .....

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tax is required to be calculated in the right hands i.e assessee and the submissions of the assessee that the said amount has already been declared by the assessee’s partners in the individual returns of income is of no consequences. For the default or wrong application of the interest by the partners in their returns of income will not be come in the way to tax the assessee for wrong deduction in the return of income of the assessee. The income tax is tax on the person who is in law duty bound .....

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ounts of the partners, do not make the assessee liable to pay the interest to its partners on its own money. In the light of the above, the income chargeable to tax as escaped assessment has the interest of ₹ 8,66,831/- was not brought to tax in the case of assessee and the assessee has wrongly claimed the deduction in the original assessment proceedings. In view of the above discussion, we also dismiss this ground No. 2 of the assessee’s appeal. - ITA No. 277/JP/2015 - Dated:- 16-8-2016 - .....

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assessment u/s 148 of I.T. Act, 1961 by solely relying upon the Audit Objection without independent application of mind and without appreciating to the facts of the case, therefore, the order of the Ld. CIT(A) deserves to be hold bad in law and consequent additions deserves to be deleted. 1.1 That the Ld. CIT(A) has further erred in upholding the action of Ld. AO in initiating the proceedings u/s 148 of the Income Tax Act, 1961 without at all recording subjective satisfaction based on the appre .....

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2. On the facts and circumstances Ld. CIT(A) has grossly erred in upholding the disallowance of the interest of ₹ 8,66,831/- made by ld. AO which was paid to partners while the capital contribution was made by the partners in the firm and the partners have already been taxed on such interest in their return of income, thus disallowance so upheld tantamount to double taxation and therefore, deserves to be deleted. 2. The brief facts of the case are that the assessee is a partnership firm, .....

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on the said amount. Finding of the ld Assessing Officer in this regard is as under:- Thus in view of above tables it transpires that the assessee in the account of partner Smt. Durga Devi Somani has shown to have made cash credits of ₹ 46,35,000/- and withdrawal of ₹ 20,00,000/- . Similarly in the account of the other partner Smt. Sangeeta Somani cash deposits of ₹ 39,35,000/- and cash withdrawal of ₹ 20,00,000/-. The assessee vide order sheet entry dated 18.11.2010 was a .....

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in the preceding year s assessment and ₹ 5,00,000/- deposited on 12.03.2010 which is out of cash withdrawn from capital a/c from 03/02/2008 to 29/02/2008. Remaining deposits of ₹ 28,80,456/- (Rs. 46,35,000 - 12,54,544 - 5,00,000 ) is hereby surrendered for taxation to purchase peace and no penalty should, be initiated. 2. Sangeeta Somani Copy of A/c of Smt. Sangeeta Devi Somani is enclosed herewith and she deposited total cash of ₹ 39,35,000/- out of which ₹ 50,000/- dep .....

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sessee is found to be acceptable to the extent of offering the income for taxation as the assessee in the account of Smt. Durga Devi Somani have deposited ₹ 46,35,000/- on various dates out of which 5 lacs were of rotated out of previous withdrawals therefore on this account the assessee his liable to get benefit of the same. The assessee has also claimed credit of ₹ 12,54,544/- for the cash payments shown as sundry creditors in the preceding years of Smt. Durga Devi Somani in her in .....

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; 39,35,000/- out of which- 5,50,000/- were rotated out of the withdrawals made from the same account. Therefore the assessee is liable to get benefit of ₹ 5,50,000/-, thus the net amount to be added for taxation as unexplained cash deposits is ₹ 33,85,000/-(39,35,000- 5,50,000). In view of above discussion the total addition on account of unexplained cash deposits made in partners accounts comes at ₹ 62,65,456/- ( 28,80.456 + 33,85,000). The assessee has made a conditional sur .....

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lty U/s 271(1)(c). 2.1 The ld Assessing Officer on the basis of the material available on the record has issued a notice U/s 148 of the Act on 14/3/2012. The ld Assessing Officer has mentioned the reasons recorded for reopening for the assessment year 2008-09 in the following manner: The assessee firm has filed e-return of income on 26.09.2008 declaring total income at ₹ 36,75,480/- which was processed u/s 143(1) on 05/08/2009.The assessment in this case was completed u/s 143(3) on 25/11/2 .....

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,65,456/-. Thus it is amply clear that the assessee claimed excess interest of ₹ 8,66,831/- and the income chargeable to tax to the tune of ₹ 8,66,831/- has escaped assessment within the meaning of provisions of section 147 of the ITT. Act, 1961. Notice u/s 148 read with section 147 of the I.T. Act, 1961 is being issued accordingly. The notice u/s 148 read with section 147 of the I.T. Act, 1961 is issued after obtaining necessary approval from the Joint Commissioner of Income-tax, Ra .....

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ther submitted that the tax was paid by the firm but was borne by the partners. It was further submitted that both the partners shown the interest received by them in the return of income in the said assessment year. Thereafter, the assessee relied upon the various judgments and submitted that the proceedings U/s 148 of the Act be dropped. However, the ld Assessing Officer had not agreed with the contentions of the assessee and has therefore passed the assessment order thereby revising the asses .....

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eposits (bogus capital) to be taxed in the hands of the partners have no relevance. Further the assessee submitted that the interest allowed was taxed in the hands of partners. Since the capital was treated as bogus in the hands of firm, therefore the interest wrongly allowed in original assessment is required to be disallowed in the hands of the firm. Considering the facts of the case, the interest paid to partners of ₹ 8,66,831/- on bogus capital is disallowed and added to the total inco .....

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e of opinion as the ld Assessing Officer has already made assessment U/s 143(3) of the Act and the reassessment on the pretext of change of opinion is not permissible. However, the ld CIT(A) has discussed the legal issue and has held as under:- I have considered the contentions of the appellant as well as assessment order. It is seen that the AO has applied his mind to the case records and has reopened the assessment on the factual matter that though the addition of ₹ 62,65,456/- was made .....

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ears from the end of the relevant assessment year. So the proviso to Sec. 147 does not place any embargo on reopening of the assessment by the AO. It is a case where the AO had reason to believe that income chargeable to tax has escaped assessment as the interest income of ₹ 8,66,831/- was not brought to tax in the case of the assessee. The cases cited by the assessee are on their own facts and are not applicable in the case of the assessee as they relate to the taxing of the income which .....

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sment proceedings, the fresh capital contributions made by the partners in their capital accounts was voluntarily surrendered and it was requested that the same may be taxed in the hands of the firm. After considering the surrender so made and further after duly examined the books of accounts and details filed of the interest paid by assessee to the partners on their capital the order was passed u/s 143(3) on 25.11.2010, copy enclosed, wherein the interest payment to the partners was not doubled .....

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amine the details already available on record which were submitted by assessee during the course of original assessment proceedings and stood examined. No new material has been brought on record to allege escapement of income and the same material (forming part of record of original assessment) is being reconsidered which is merely a change opinion. The reasons recorded by the Ld. AO would further show that there has been no allegation of any failure on part of assessee in disclosing the materia .....

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above, it becomes clear that the Ld. AO has failed to record proper satisfaction regarding escapement of income and the reasons to believe framed by the Ld. AO are based on nothing but mere change of opinion which is totally impermissible in law and is violate to the provisions of section 148/147. It is well settled law that merely a change of opinion, no reassessment can be made u/s 147 and a subjective satisfaction on fresh material has to be recorded for alleging the escapement of income. Th .....

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Indra Devi Gupta (JP) (vii) 59 DTR 221 Virendra Kumar Agrawal vs. ITO (Mumbai 'F') (viii) 122 DTR 131 Avtec Ltd. Vs. Dy. CIT (Dei.) (ix) 157 ITD Issue 1 Weekly Browser Page 11 Adani Developers P. Ltd. Vs. ITO, Ward 1(1) [2016] 66 Taxmann.com 125 (Gujarat) (x) CIT Vs. Indian Sugar & General Industry Export Import Corpn. Ltd. [2008] 170 Taxman 229 the Delhi High Court The sum and substance of the above said judgment that once the ld Assessing Officer has confirmed and has passed a rea .....

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d and therefore, no opinion has been framed on that issue. 5. On the other hand, the ld DR has submitted that U/s 147 of the Act three issues are required to be appreciated: (i) That complete information has been furnished by the assessee during the assessment proceedings on the basis of which the ld. Assessing Officer has framed his belief for the purposes of assessment. (ii) The assessee has not concealed the information. (iii) The assessee has disclosed the complete information to the ld Asse .....

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e Assessing Officer to examine the issue and therefore, it was submitted that the present case is not of the change of opinion or of the oversight of the opinion rather it is a case of escape of the income required to be taxed in accordance with law. 6. We have heard the rival contentions of both the parties and perused the material available on the record. For the purposes of deciding this issue, it is necessary to reproduce the judgment of Full Bench of Hon ble Delhi High Court in the case of .....

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out earlier that Kalyanji Mavji (supra) outlines four situations in which action under Section 34(1)(b) can be validly initiated. The Indian Eastern Newspaper Society's case has only indicated that proposition (2) outlined in this case and extracted earlier may have been somewhat widely stated; it has not cast any doubt on the other three propositions set out in Kalyanji Mavji's case. The facts of the present case squarely fall within the scope of propositions 2 and 4 enunciated in Kalya .....

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ation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on "information" in the shape of some light thrown on aspects of facts or law which the I.T.O. had not earlier been conscious of. To give a couple of illustrations, suppose an I.T.O., in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits real .....

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ther research into law he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under Section 147(b) by virtue of proposition (4) of Kalyanji Mavji, The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there would not affect the position because the information that such facts or decision existed comes to him only muc .....

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een missed earlier, for e.g., as in the two Madras decisions referred to earlier. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also cases in which the I.T.O., having considered all the facts and law, arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal aspects to which his attention had been drawn earlier, he comes to a .....

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decisions had consistently held that this could not be done and the Indian Eastern Newspaper Society's case (supra) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji (supra). The second paragraph from the judgment in the Indian Eastern Newspaper Society's case earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the ITO realise that he has committed an error in the earlier asses .....

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ough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently come by the material from the reco .....

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ith reference to the term 'information' and conceptually there is difference in scope and ambit of reopening provisions incorporated w.e.f. 1st April, 1989. However, it was observed by the Supreme Court in Kelvinator of India Ltd. ( supra) that amended provisions are wider. What is important and relevant is that the principle of "change of opinion" was equally applicable under the unamended provisions. The Supreme Court was therefore conscious of the said principle, when the ob .....

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matter and form an opinion, would be contrary and opposed to normal human conduct. Such cases have to be examined individually. Some matters may require examination of the assessment order or queries raised by the Assessing Officer and answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceed .....

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id question or applied his mind. However, this would depend upon the facts and circumstances of each case. The Hon ble Delhi Court in the case of CONSOLIDATED PHOTO AND FINVEST LTD. Vs. ASSISTANT COMMISSIONER OF INCOME-TAX [2006] 281 ITR 394 (Del) has held as under: 10. It is common ground that in the present case the Assessing Officer had not received any additional information from any outside source or quarter but the fact that there was no such information did not make any material differenc .....

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the material was available to the Assessing Officer and if an assessment order based on that material is passed by him, a reassessment using the very same material or inferences available from that material should tantamount to a mere change of opinion, which cannot, according to the petitioner, constitute a valid ground for reassessment. 11. We may, before going into the merits of the main contention urged before us, deal with the question of limitation feebly argued by Mr. Vohra. As noticed ea .....

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of all material facts must be rejected out of hand in the light of the provisions of Explanation 1, according to which mere production of the books of account or other evidence from which the Assessing Officer could have, with due diligence, discovered the material evidence does not necessarily amount to a disclosure within the meaning of the proviso. The action initiated by the respondent does not in that view suffer from any error of jurisdiction to warrant interference from this court in exer .....

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ssessing Officer for reopening the assessment cannot be said to be either incompetent or otherwise improper to call for interference by a writ court. The Assessing Officer has in the reasoned order passed by him indicated the basis on which income exigible to tax had in his opinion escaped assessment. The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the .....

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conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where .....

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he order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the Assessing Officer had based on the material available to him taken a view. If he had not d .....

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osit the tax on the said amount in the hands of the firm. (iii) No notice or enquiry whatsoever was conducted by the ld Assessing Officer in respect of the deduction claimed by the assessee for sum of ₹ 8,66,831/-. The ld Assessing Officer has not put any question to the assessee with respect to allowing or disallowing these expenses towards the interest paid to the partners of the firm. (iv) No answer was given by the assessee in respect of these deductions claimed by it. (v) The ld Asses .....

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ion was formed by the Assessing Officer in the original assessment proceedings in this regard. Since we have held that no opinion was formed by the Assessing Officer in the original assessment proceedings, therefore, the reopening made by the Assessing Officer on the same facts cannot be said to be bad in law and is in accordance with law mentioned hereinabove. By respectfully following the judgment of Full Bench of Hon ble Delhi High Court in the case of Usha International (supra) we uphold the .....

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contribution can be disallowed by the ld Assessing Officer or not. In this regard, in the original assessment proceedings, it is a case of the assessee and also in the reassessment proceedings, that the assessee had surrendered the amount of ₹ 62,65,456/- towards the cash credits in view of Section 68 of the Act being unexplained cash deposit. Since the assessee had admitted that the amount of ₹ 62,65,,456/- as unexplained cash deposits of the assessee, though, the said amount was a .....

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